GST effect on car prices?

This is a discussion on GST effect on car prices? within The Indian Car Scene, part of the BHP India category; Originally Posted by aadya
It should mean that some of the materials should have costed less(for common man) and luxury ...

Folks in automobile industry management must be an angry lot. Honestly this whole tax revision is bad for GST as a system and what it intended to solve, a 'predictable' tax regime. One cant have companies go back to drawing boards every quarter due to tax fluctuations. A lot of companies who may be interested in setting shop can turn the other way given the see-saw in taxes. I hope better sense prevails and government stays put with the current structure.

I am as shocked as you buddy. But then again, they will only be bought by the ones in power or their "close" associates. And come on, they work so hard for us, and you want them to be taxed at a high rate?

Increasing cess from 15% to 25% is an absolutely ridiculous move. I don't know why people are saying that the tax is just going back to same level as before.

Our previous tax structure was pathetic and made no sense whatsoever, so comparing with previous system is wrong. Here with GST, we are trying to set up a 21st century tax system in India, and it needs to be forward looking tax structure, where moderate taxes will help more companies set up manufacturing in India and set up more car showrooms, generate employment, and make lot more things viable once they reach certain volumes. All this is only possible with moderate and predictable tax structure.

First, we all accepted the 5 different GST rates, where 28% is the highest GST rate meant only for luxury items - and all cars are put into that bracket, despite our our country having the poorest public transport. Someone, who wants to buy a 2 lakh rupees Alto/Nano has to pay luxury item tax of 28%.

Second, centre decides to put a cess on some super luxury items/sin tax in order to compensate states for revenue loss. Again they put Alto/Nano in those super luxury items and put a cess of 1% on it. It angers me to even think about how and why government is doing this, despite decades old transport system.

Thirdly, the maximum GST rate has been defined in Constitutional Bill as 40%, so once the cess goes, the maximum tax on cars has to come down to 28% or 40%(max limit). So 43% tax was much closer to 40% max limit. Actually, ideal would have been 28% + 12%cess =40% overall. So after 5 years (When the cess would have gone), car companies would have had a much predictable tax structure. This 53% tax would play a big spoil sport, is not well thought out at all.

I have high regard for Arun Jaitley on how he made GST possible, but he needs to put a foot down on such ridiculous proposals. Sad day for Indian Car industry.

This is called politics business. Nobody will go to streets and do strikes & protest just because the GST on cars have increased. This war will end in facebook and in forums like this.
The mass population will be happy with this move as it will not affect them. Rather it would give a political advantage to the ruling party and added bonus from the extra GST.

GST was anyway for government, not for tax paying public. I just calculated the tax on an invoice I received for Tiguan. Car price is actually around 20L and close to an additional 15L goes to government. That is 75% additional of car's value as GST and road-tax.

The only choice I can make is, put the desire to buy a new car to rest and live like a fool singing praises to super brains who rule us.

Cess component was introduced as a measure to fill the gap between the existing taxation and the maximum tax rate of GST(28%) so as to avoid any loss of revenue to states. However, in two categories of cars, i.e, Large cars and SUVs, the tax has come down after GST implementation (Refer table below). States would have probably raised this issue of revenue loss due to the reduction in taxation in these two segments which probably is the background for the proposed corrective action. I wish that the 25% cess would not be extended to mid-Segment though there is a slight reduction in Tax in mid-segment cars as well.

After the correction,
Cess on small cars @ 1% to 3%
Cess on mid-size cars @ 15%
Cess on Large segment and SUVs @ 25% seems logical and reasonable.

Extending the same logic of maintaining approximately the same level of pre-GST taxation in the GST era also, GST and cess applied on Hybrid cars deserves a review and downward correction.

The issue here is the flip-flop decision making by the govt., and doesn't inspire confidence, especially if I was a foreign investor looking at India, or if I was a car buyer trying to make an informed purchase with my hard earned money.

I support govt's decision.

1. I don't think govt will raise prices far beyond what was pre-GST. There might be some minor deviations.
2. I don't think investments in country will be deterred. Ones using India as a manufacturing hub for exports will continue to invest. Providing power, infra, skilled labor is far more important driver of investment than few 1000 cars you and I could buy. Only the incompetent will run away - like the GM. Rules are for every player and not for specific car makers.
3. I don't think sales will diminish. Sales are not going anywhere but north. Did sales ever slack in MH or KA? Those who can pay 70-80k more on mid-segment car would pay without batting an eyelid.
4. I also believe that we are a nation severely crunched on resources. 80% of people go hungry every night. With much better utilization of resources happening over last couple of years, I am happy paying more taxes. I am confident that it is starting to trickle down to people who need it. And to middle & upper middle class as well. I hear that almost all UP cities are getting 20+ hrs of power, Gurgaon is better this year, almost all congestion points in Gurgaon are being fixed rapidly. All in all, it is a win-win if govt can actually productively. deploy collected assets.

Only issue I see here is govt flip-flop and that's not because of investor sentiment. It is just that they could have so easily thought this out much earlier. We are talking big segment here and not some low-sales unimportant item.

I will soon be in market for D-segment car (preferably XUV) but am not feeling any pain. I notice many of us talking of 'desire for wheels' going unfulfilled or not being care for by the govt. I respect that perspective. I also wish taxation on cars was minimal given huge Income Tax I pay every month. And I could drive a German luxury rather than a C+/D segment car. I wish the same for so many other taxes. I also wish that, at least, every one is taxed properly. That would be ideal world.

Cars are just one example. You can find people spending 25-30L on kitchens, 2L on a watch, 40-50k pm on salon visits, million on international trip etc. etc. We are a poor country, very very poor country. Period. Those who can afford the excesses and luxury need to pay a little extra for it. Demonetization and GST is nailing a lot of corrupt and lot of people are crying hoarse. Just that everyone not paying taxes should be brought to book.

Please note that this is a non-political forum and it's laid down in the guidelines. It's up to mods, whether to remove or keep.

It's a good thing that, you're happy to pay taxes. And I'm sure all our members are also proud to pay taxes. And when we pay taxes, Citizens have every right to question the expenditure. So, the concern is whether the entire tax amount is spent for the purpose it is collected.

Instead of discussing on hope, let's discuss on facts. Our roads last only up to next monsoon, whereas, they last for more than 20 years in other countries. Consistency in govt. policies reassures the confidence of citizens.

Increase in GST benefits, both Central & State govt.'s, since it's shared equally. States can increase the Road Tax, If they're losing revenue.

SUV's and Luxury Cars are not only bought by Rich, but also by Driving Enthusiasts. Some even stretch their budgets and sacrifice luxuries, just to fund their dream Car.

A fraction of motorists do mistakes, but everyone is punished in the form of speed breakers. Indian economy will grow, if the maintenance cost due to bad roads reduces, since it's an avoidable expenditure. Good roads lead to better fuel efficiency, thus saving forex reserves of our Country.

1. I don't think govt will raise prices far beyond what was pre-GST. There might be some minor deviations.
2. I don't think investments in country will be deterred. Ones using India as a manufacturing hub for exports will continue to invest. Providing power, infra, skilled labor is far more important driver of investment than few 1000 cars you and I could buy. Only the incompetent will run away - like the GM. Rules are for every player and not for specific car makers.
3. I don't think sales will diminish. Sales are not going anywhere but north. Did sales ever slack in MH or KA? Those who can pay 70-80k more on mid-segment car would pay without batting an eyelid.
4. I also believe that we are a nation severely crunched on resources. 80% of people go hungry every night. With much better utilization of resources happening over last couple of years, I am happy paying more taxes. I am confident that it is starting to trickle down to people who need it. And to middle & upper middle class as well. I hear that almost all UP cities are getting 20+ hrs of power, Gurgaon is better this year, almost all congestion points in Gurgaon are being fixed rapidly. All in all, it is a win-win if govt can actually productively. deploy collected assets.

Only issue I see here is govt flip-flop and that's not because of investor sentiment. It is just that they could have so easily thought this out much earlier. We are talking big segment here and not some low-sales unimportant item.

...
Just that everyone not paying taxes should be brought to book.

Would you elaborate why taxing more will bring every tax evader to book?

I think you are cutting them too much slack. They can do all the good you point out, if they plug corruption in the political-bureaucratic nexus. They have the majority in Parliament to start that, by making the CBI independent of the Centre, by appointing a Lokpal, etc. They won't do it, because it may come back and bite them.

If they squeeze it out of the tax-compliant public, hey, we don't bite back. Have you seen restaurant rates after GST? What is happening to the urban blue-collared person who eats out everyday? The whole concept of a high service tax rate is a big hit on the masses you feel they are supporting.

They are sitting on plenty of money, and more comes in everyday. Every service they provide comes with a rate. Heck, petrol is taxed like anything, using an opaque formula. Highways have tolls. Airports have toll rates added into the ticket. Most people pay for electricity & water. And the money doesn't go to the people, even those whose lands are taken away.

There was no justification for 25-30% excise duty + VAT on it before. There is no justification of GST + cess being even 43% now, given the daylight robbery that the service tax rate is. If it becomes 53%, it is daylight robbery #2.

This money will be up for misuse like before. Before you think corruption, consider how LIC is asked to invest in specific stocks of the government's choice, how much money is put into mega dams (in earthquake areas too), how much money is put into low-capacity metro trains; money can be officially misused.

I think GST impacts everybody, and "everybody" dreams of owning a car. Over-taxing a well-regulated job-creating industry is politics played by the government. Let us blame them!

If mods do enter the picture, I would request that this thread be merged with the non-car GST thread. We are not just paying more tax on the car, we are helping pay more tax on the showroom rent, on the insurance premium, on petrol & diesel ...

Last edited by moralfibre : 9th August 2017 at 09:12.
Reason: Back to back posts.

I think GST impacts everybody, and "everybody" dreams of owning a car. Over-taxing a well-regulated job-creating industry is politics played by the government. Let us blame them!

Yep, the ultimate truth matters. Let's assume that some Rs.10k odd is reduced from the initial sale price of the cars.. small potatoes.

What really has increased is invisible to most people, you're paying more per service, more per car treatments, for accessories and in due course of 6-8 years the difference in costs will easily exceed that small tax-enabled discount.

Not that I've a problem with it, I understand that punishing those with resources is a norm in this country. I just have a problem with all the hoopla about GST making things much more easier and more affordable across all products and services (atleast that was the pitch about 6 months back). I'm in an industry which has been affected by price rise due to GST, businesses are down roughly 33-40% with the double-whammy of demonetization and this, demand will always decrease when people see that their savings are eroding faster than ever.

Trickle-down economics is considered to be a sham by the socialists, but if we think about it.. who creates the jobs in the end? Do not, high margins and profits in the end result in benefits in the name of bigger salaries, more employment and job security? Yes there is an entity that manages the roads, infrastructure, security (police/military) and resources like piped water and electricity etc and for that I couldn't be more grateful.. but I don't think the said entity has rights to own everything about us as a result.. not by a long shot.